Hey there Reader,

It's the November Money Issue, and this week I decided to rant about something that really bothers me with how its presented to the public: "passive income" aka the biggest financial scam sold to the masses.

But it's not all downers this issue, because I'm also going to share with you a model for financial freedom that doesn't require you to rely on passive income sources (because you don't need to be a millionaire to live a wonderful life free of financial stress).

And of course, I'll bring it around to my own life at the end to wrap this discussion up in a nice bow.

There are only two types of real passive income, and both have steep upfront costs

Okay, maybe there's more than two, but these two categories will basically cover probably 99% of passive income sources in the real world (this is a scientific fact and you should always trust any newsletter authors to never exaggerate, ever).

The two types are this: large amounts of productive assets and certain types of businesses (typically internet businesses) that eventually cease to require much effort to maintain. The catch here is that each of these methods requires a massive upfront investment, either financial and/or time/hard work.

The first is simple: accumulate a large amount of productive financial assets that return regular income. This could be a real estate portfolio, dividend-bearing equities, certain crypto investments, etc. The burden here of course being that you have to be able to acquire these assets...with cash. Passive income is expensive!

The second type of passive income—a specialized business—may not necessarily require much money upfront to start, but it will require a ton of time, effort, and often specialized skillsets (like web design, marketing, content writing, etc.). Think something like an SEO-based recommendation site full of evergreen content that makes money on ad traffic and referral links, or a course business that finds a way to scale and sell without much active involvement from you/the founder. But really this type of business is a unicorn: they're hard to make successful and often will end up requiring ongoing time and effort anyway which somewhat defeats the purpose of "passive" income.

So in effect, there's really only the one type of passive income worth pursuing: accumulating assets and being a savvy investor. But I'll come back to this.

How you can live a life of financial freedom without being a millionaire

One of the things that bothers me about people who try to sell the masses on "passive income" is that they make it into a false dichotomy: income is either passive (and by extension, "good") or active (and by extension, "bad"). But this is just nonsense and distracts you away from the point: work does not have to suck, and it's very possible for you to find work that you don't hate that also brings value to the world (aka, you get paid for it).

And when you combine an active (or scalable, more on that later) income source or two with ample saving/investing of excess funds, you can quickly find yourself in an enviable financial position where you don't feel the financial stress anymore and enjoy your work.

Redefining "financial freedom"

Real quick, I'm going to redefine the idea of financial freedom, because this is key to my arguments about it. When you think of financial freedom, you probably think of being a millionaire, not having to work for a living, etc. Well, I want to challenge that definition and propose that financial freedom is actually much simpler: it's just being free of financial burden and having the ability to make large changes in your life without worrying about money such as moving cities (or countries), changing/leaving jobs, getting married, having kids, etc.

Solve for balance and happiness, not money or passion

The key to this idea is that we believe that working is perfectly okay, as long as that work fits the lifestyle you want to live and is work you don't hate doing. Note that I said "don't hate" and not "love" because it's not actually necessary for you to love your work for that work to be worthwhile and meaningful to you.

So then it's a matter of finding work that, well, works for you (I swear I didn't intend that pun, it just came out) and making sure its work that is valuable enough that you'll earn excess income to put towards an ample savings/investing strategy that will unlock your financial freedom well before you become a millionaire.

You want to balance earning a good living with doing work that you can comfortably and happily do every day (or as often as you need to do it to earn a living).

What does it mean to be financially free then, in real terms?

Good question. The answer basically comes down to this: you have enough accessible savings/investments to weather a significant period of financial disruption, while your work is work that you're happy with.

This is not an emergency fund. I actually don't believe emergency funds are worthwhile for most. Instead, I think you should keep maybe 1-2 months of expenses in your cash checking/savings accounts while keeping the rest of your short and mid-term money in taxable investment accounts, either investing in individual stocks if you're a finance nerd like me or keeping that money in index funds if you don't want to learn about investing in detail.

And when you have ample savings—say a year or two's expenses—in your taxable accounts that you can withdraw from if needed, and you combine that with sustainable work that isn't going to burn you out and pays well enough that you can keep adding a significant amount to your savings every month, you're essentially financially free. At least I would argue you are. You have the ability to make major changes in life without worry about money and you don't hate your work that's bringing in the income in the first place. What more could you ask for?

The takeaways and my personal example

I have a lot more to say on these topics of income sources, money as energy, and building a sustainable life for yourself, but I'll save those for other Money Issues/regular issues. Otherwise this issue would be obnoxiously long. Here's a quick recap of important points from this issue:

1. "Passive" income is rarely actually passive, and real passive income requires a steep upfront cost in either capital or time/work or both.
2. You don't need to be a millionaire to be financially free.
3. Find work that you can sustainably do for the long-term (or at least medium-term) that also pays well enough to be able to save significant amounts each month.
4. Skip the 6-12 months emergency fund and opt for 1-2 months of expenses in your cash accounts, with the rest of your funds in investments.
5. I didn't mention this earlier, but related to the above is: only use your employer's 401k up to their match. I would argue it is almost always more worthwhile to have your money in taxable investment accounts than in a 401k, because the latter is inaccessible until you reach 65 and we want to be financially free well before that time. Taxable accounts will be the wealth that helps you feel financially free, as you can actually access it if needed.

Applying this framework to my own life

Now, to wrap this up, I'll apply these ideas to my own life so that you can see a practical example of how I'm already pursuing financial freedom.

As you all probably know, I'm a web software engineer by trade, and fortunately for me, this is a career where I can make good money, certainly enough to live a comfortable life and still save ample amounts each month. Of course, I'm not working right now (by choice), but that's really just illustrative of my point. I was able to take a sabbatical precisely because I followed my own advice and built up taxable investment assets that I could draw on during a period of low/no income.

But I digress. My career is also a career that I genuinely enjoy, so I have no problems continuing doing it for the foreseeable future. So, once I get settled into a new job, I'll be doing work I enjoy/can do sustainably and making enough money to save amply in the process. Apply this over some time, and before long, I've saved up enough in taxable assets to be able to do whatever I want to do again. Though I certainly hope I never get to a place with a job where I just feel the need to leave in order to maintain a healthy balance in my own life again, it will be nice to get to a place where I can choose to leave another job in order to pursue a special opportunity or something of that nature.

I've been building my life in order to pursue sustainable wealth and income for a while now, so don't feel discouraged if you aren't there yet. We all get there in our own time. But if you want financial freedom, don't buy some "passive income" scheme from another influencer or coach. Focus on building a sustainable career instead and building up assets naturally from that.

Journey Update

I don't have much for you this week actually. I'm kinda right in the middle of a bunch of traveling, so I'm not getting a ton of time to work on my Journey.

I finally feel like I'm starting to get a grasp on what's next for my life, and I'm really looking forward to an upcoming trip to NYC for the holidays (spoiler alert)!

The big thing this week was actually movement on my personal life stuff which was nice: I'm reconnecting with people I haven't talked to in a long time, and it feels amazing! These are people I'd love to have in my life.

So I hope you guys have a great day and weekend. May your financial freedom journey be swift and impactful!